One of the questions I’ve received a lot recently is “what does the Brexit mean to companies with real estate in the UK?” The question often comes from a sense of urgency to figure out if a change of direction is needed. Will the Brexit cause companies to change their plans for locating in the UK?
Real Estate is often equated with financials but in this case there is a significant difference between the impact on financials and the impact on real estate. Real Estate (especially leased real estate) is not a financial investment – it is the physical location that a business operates from. Real estate is required if a physical presence is needed.
Prior to the Brexit (is it just me or is this the worst word ever?) a company could minimize their European presence by focusing on a few key locations (which often included the UK but not always). Now they will likely need to guarantee a physical UK presence if they want to have an operational presence in the country. This likely means an increased need to have a physical presence in the UK regardless of industry.
This is not to say that businesses will see increased financial benefit in the UK from the Brexit; companies are going to find operating in greater Europe more complex now which will likely reduce organizational efficiency and lead to a new location strategy for the continent.
Some quick questions that won’t be resolved anytime soon but will need to be addressed potentially changing organizations’ real estate strategy throughout Europe:
- Can UK business be conducted from hubs in Spain, Italy or Eastern Europe? Will some functions need to relocate back in country?
- Will regulations change within the UK leading to separate legal operating conditions for EU countries and the UK?
- What will the new tax implications be for operating in the UK versus elsewhere in the EU?
- What will the impact be on workforce within the UK given new constraints on immigration/freedom of movement? This one in particular will be longer to play out – possibly not even over the next 10 years.
- Will uncertainty in Scotland/Ireland need to be accounted for in plans? Is there any advantage/disadvantage for establishing an Irish or Scottish presence given that Scotland in particular wants to be in both the UK and EU?
Nothing will be resolved quickly particularly because it is difficult to change real estate operations quickly. It will be two years before CRE trends really begin to surface. My guess is that you will see a short-term pick up in real estate operations throughout non-London England and probably Scotland as well. Longer term there are too many questions to figure out to really know yet.
The biggest industry facing uncertainty is Financials and Insurance. Given London’s presence as the European center of Finance and Insurance will the EU try to establish a counter-market within one of its member countries that requires business in these industries to setup sister operations to their existing London presence? Interesting to see but again, any change is in the future.